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About Henry Ergas

Henry Ergas is a columnist for The Australian newspaper and the inaugural Professor of Infrastructure Economics at the SMART Infrastructure Facility at the University of Wollongong. The SMART Infrastructure Facility is a $61.8 million world-class research and training centre concerned with integrated infrastructure solutions for the future. Henry is also Senior Economic Adviser to Deloitte Australia. Prior to these concurrent roles Henry worked as a consultant economist at NECG, CRA International and Concept Economics. Henry's previous career was as an economist at the OECD in Paris, where amongst other roles he headed the Secretary-General’s Task Force on Structural Adjustment and was Counsellor for Structural Policy in the Economics Department.

Thanks for the giggle, Henry, but I won’t be holding my breath. In the wonderland that is Victoriastan, I have not caught public transport for 6 years and I’ve not caught a cab in around the same time.

Crying hardship, they front the lobbying but the real puppet-masters are Cabcharge – whose monopoly allows it to clip the ticket on every part of the industry – and the two deep-pocketed taxi dispatch systems, one of which Cabcharge owns.

Sounds like Ergas believes that tax licenses are just on of the issues and that fixing the monopolistic behaviour that Cabcharge has is a bigger problem. Certainly the fees they charge for use of credit cards seem excessive and as a side effect must add to the risk for drivers who end up having to handle a lot more cash than they otherwise would.

Though I suspect with the growth of app-based taxi (but somehow not a taxi to avoid regulation) systems that are starting to pop up will eventually break both the Cabcharge monopoly and licensing issues.

Little Achmed should be able to get an old LPG BA Falcon for 7k, have it detailed and mech A1 for about 2k, prove he is not a prohibited person and do some asvertising for a few grand and he’s ready to roll for under 14k.

Taxi prices are outrageous, even if he charged half fees, he could earn $40 per hour working for himself, before costs.

He could employ someone at near graduate salary when he’s not working and make a packet.

He should be clearing 100k after tax, and the consumer paying half price. He’d piss in the loan and be able to fleet up in a few years. He’d be a multi millionarie in five to ten years.

There might be a few thousand taxi barons in the country. Why are we beholden to them?

I can understand people wanting to keep the value of their licenses.
What I fail to understand is the creeping restriction on the numbers of those licenses except to keep the “value” artificially high.

Its really a basic service, on par with trucking goods, would it be acceptable for wheat rucks to be limited to 100 statewide, no competition?

Victorian Libs have form when it comes to caving in to business interests, particularly when donations to the party are involved. I recall a cave-in to CUB a couple of decades ago. The most egregious example was when the party caved in to Hoyts’ demands when Reading Cinemas were trying to get started in Victoria. Of course, Hoyts’ $100,000 donation to the party had nothing to do with it.

I’m all for deregulation. Taxi costs are ridiculous. I recall on one occasion a taxi fare to the airport costing more than the (discounted) flight to Adelaide!

But, but, but, we’re talking about real people – you know, with families – who have staked their future livelihoods on taxis as an investment.

If the government takes any action – and I hope they do – they have to compensate license holders fairly and just cop it on the chin. The government stuffed the system to begin with and it has been left to flounder for too long.

If you own a license, you bought it in good faith that the value would not be retrospectively destroyed through a massive change in government policy.

Too bad for the taxpayer – on this occasion. Maybe if Labor hadn’t wasted so many billions on idiocies like the desal plant and pointless bureaucracies and perks for public servants, they’d have enough to payout license holders and create a truly open market for the licensing system – to the extent that a licensing system is needed at all!

In London two cab systems operated side-by-side, the familiar black cabs which can be flagged down on the street and minicabs which must be pre-booked.
Back in the 60s due to a loophole in the regulations anyone with a licence and a roadworthy vehicle could set up as a minicab. Minicabs now apparently are also government regulated.
Maybe there is a similar loophole somewhere in Victoria’s taxicab regulations.

@manalive – indeed the minicab business operates as a shadown taxi service – nobody but those with expense accounts take black cabs to the airport.

Mind you, the hilarity of London clubs emptying at 3 am, no black cabs to be found, but plenty of guys standing around innocently going ‘cab’, ‘cab’, ‘cab’. Not allowed to take street bookings, y’see.

On more than one occasion I realised I was getting a ride home with some regular Joe with a car. Not even a minicab licence. But it was always cheap – ah, the joys of the black market that gets created when rent-seekers get their wishes.

Just remember that state (and city) governments all get revenue from restricted cab licences and services.

The thing most likely to finally drive a stake through the taxi-price-rort is actually automated cars.

The comparison with freight is a good one – nobody would think for a moment that granting Lindsay Fox a monopoly on freight would be a good idea. But most people will stand around and agree that taxi licences are important.

Those who have not got their money’s worth yet (this could be calculated reasonably easy, my estimate would be those who have had them for less than about 5 years) should be compensated, but otherwise it should be totally deregulated. Licenses for taxis should not exist. People should be able to just become a taxi or start a taxi service with no laws or bureaucracy involved.

Yep, the taxi system is such a scam. I remember reading the qld government one, it read like a communist manifesto. The government and taxi lobby decided how much demand there was and how it was best serviced and what price is ‘fair’.

In qld the price has surpassed $430,000. The amount of profit is staggering. Imagine a market with that kind of barrier to entry, where your competitor has to pay $500 a week in interest.

Taxis in qld are $45 per hour plus $2 per kilometre, average of 30ks per hour plus $2 flag fall is a total of $107 per hour income. Dead time is usually 50% meaning the cab makes about $50 per hour. The driver earns $15. The cab can often pay for itself, even with the ridiculous license costs, in just a few years. However because there are actually more licenses and demand for taxis over a full 24 hour period, the dead time can raise to 80% or more with with license off the road for over 12 hours a day.

If the number of licenses were restricted a bit more, one license could easily pull in $400,000 a year, and the value of a license could easily reach $6,000,000.

“But, but, but, we’re talking about real people – you know, with families – who have staked their future livelihoods on taxis as an investment.”

Staked? Speculated more like. Surely licence owners don’t think they’re going to be able to get a 22% pa return forever. Time to pull the plug on this nice little government-licensed rip-off. I fear, however, that One Term Ted is not the man for the job.

I don’t see why anyone with a taxi licence should be compensated at a value higher than the face value the licence was initially purchased for (hell I’d accept adjustment for inflation). Fact is, these licence-holding grubs have been profiting under monopolistic conditions that they’ve fought like hell to maintain. If the plates change hands on the open market for more than what they’re ostensibly worth, why should the taxpayer compensate the people who have driven the price up?

No, the government is under no moral obligation to compensate anyone for more than the initial purchase value of the plates. If that means an old plate currently worth 6 figures but which originally went for a couple of hundred bucks (which would now be a few grand, after taking inflation into account)…well, a few grand is what the current owner should get. And not a penny more.

If the government auctioned off plates as a revenue source and newer plates initially sold for large sums, then they’re going to have to pay more.

My initial reaction is that I have no idea why a government hasn’t built an election campaign around deregulating cabs. There are so many winners and so few losers in such a situation.

Then I remember the dopey WA voters who voted at referendum against their own interests to restrict supermarket competition by electing to maintain regulated opening hours. A majority fell for the most transparently self-serving and imbecilic campaign from the small group of ‘independent’ supermarkets who stood to lose from deregulated trading hours, as they’d have to compete against Coles and Woolies at all hours, not just 9-5, 6 days a week.

I remember the campaign the independent supermarkets (who, incidentally, had no problem driving the hundreds of corner delis out of business when opening hours were partially deregulated in the 90s and these small and independent supermarkets were allowed to open late and all weekend – times which the delis previously had exclusive preserve over) ran well. Mass layoffs, a Coles/Woolies high-price duopoly…even local sports would suffer because all the referees and organisers would be hard at work in Coles or Woolies on a Sunday morning, instead of refereeing the T-ball. Yes, that was one of their arguments.

And the wider public bought it and voted against their own clear interest, in favour of the interests of a very small group in society. So running on a taxi-deregulation platform is riskier than it should be, because so many voters are so bloody dopey.

I am sure I have missed some others but suffice to say why are taxi drivers and operators considered the most evil? Any body who owns shares in any of the industries above or deals with any of the above is an extreme rentseeker if this is the case. Seems we might all be rent seekers. I agree that some things could be changed but to blame Taxis for everything is crazy and you are not even picking on those who take tax off you. If as a few suggested above it is so easy you are welcome to buy a cab.

Rather than simply buy out the taxi-rort, in order to keep these people happy the government could simply offer the owners additional licenses as compensation. After all, they could if they wanted to.

This way, they could start again with the system, deregulate it as best as possible and the owners would have no cause to complain about devalued licenses because they have many more anyway that they can sell at actual market value.

I do love the typical taxi-rorter solution “just put fares up! That will make the service better!” Yeah, because it’s worked in the past and has absolutely NOTHING to do with you simply making more money. What a joke.

I hope people simply start taking their own cars to areas where people need cabs and start driving them home at a discount. Stick it up this monopoly rort.

The big problem is the taxi licenses, which are now trading at over half a million dollars.

It’s not easy to fix, but he can start by recognising existing licenses as a form of government debt.

Of course it is easy to fix, if the price of licenses is too high, then government should sell more licenses. This makes money for the public. The existing license holders were never provided with any government guarantee of an appreciating asset, let em try to sue for damages if they think they can get it.

kelly liddle, yes there are many different licensing issues that are broken in this country. For example, in Singapore it took my step mother 1 hour to set up a fully licensed bar. 3 forms and a trip to the police station for a stamp. The actual license cost her barely anything. Anyone who thinks Singapore has an issue with alcoholism and violence is braindead (violence is severely punished, you could go out 100 times and not see a single brawl).

Our governments use the licensing system as a way to raise revenue and it simply ends up restricting the market and making it hard to do business. In the end the consumer takes it.

Taxi’s cop a lot of flack because 1. Licensing costs are utterly extortionate and overpriced and 2. The public need taxis and we need them at times when we don’t have the tolerance for them to not be there, ie 3am after a few drinks.

I cannot count the number of times I’ve had a cab simply drive past me with it’s lights on (probably because I’m a male) nor the number of times they have stopped, asked me where I’m going, then refused simply because it was too short a trip. The system is broken and we only have the government to blame.

“If as a few suggested above it is so easy you are welcome to buy a cab.”

Have you not being paying any attention at all? I’m sure there are PLENTY of people that would do this if the cost was actually reasonable. Why would anyone in their right mind pay $500,000 for a license?

It’s not just the license, they have to pay for the meter as well, about $2K a month I believe. So the taxi’s first $50K collect in any given year is just handed over to rent seekers. Imagine how much more attractive the job would be if that stayed with the driver. (also add petrol + vehicle, not optional)

I forgot the big one, real property is restricted through zoning. Any argument about not being able to buy is just the same.

To get into the Taxi industry in Brisbane you require about $120 000 deposit (40%) to buy a taxi for $280 000 plus stamp duty which will be around $7000. This is enough of a depost for you to buy a Maxi (wheel chair accessible taxi) with one and a half years left and the owner must drive it 150 shifts per year.

Some basic information about costs for Brisbane.

Radio fees $200 per week
Vehicle replacement $100 to $200 per week (standard vehicle can be as low as $100 but wheelchair accessable around $200 vehicle can only be 6 years from date of manufacture or 8 years for wheelchair vehicle)
Rego $150 per week (only $20 per week if wheelchair vehicle is subsidised)
Approximate cost if comprehensively insured $150 per week.
Vehicle repairs and maintenance costs from $100 to $200 per week.
Fuel will be around 10% of turnover can be a little more or less.
Cost of standard licence which if leased is around $500 per week I think.

So if just talking about taxis to keep with the theme Land zoning, Insurance, Taxi booking companies.

2. The public need taxis and we need them at times when we don’t have the tolerance for them to not be there, ie 3am after a few drinks.

Yes this is the point and have to think about that so for a maximum of 10 hours per week people wait for taxis and the rest taxis wait for them. The population all want a cab at the same time and some of them are abusive which can reduce the number of taxis on the road at that time.

The licence cost as a proportion of the fare is around 15%. So in this restricted industry how exactly are you going to reduce fares by opening it up. Even Fels did not say that it would reduce the fares only provide a better service. I am not against a better run limitation on number of taxis but no one in the industry is calling for unlimited taxis, drivers especially. Given the facts I am curious how you will get better service from lower paid drivers which is what you will get with more taxis. The only thing that can be considered better is in those peak times waiting times will reduce but all other times the drivers will not behave better because they feel more free getting less money.

There seems to be some confusion about what a Taxi is. People talk about booking a taxi well you can book a limousine and you can buy a licence for $75 000. The difference is they can’t wait on a rank and must quote a price that is all. So if the barrier to entry is too large for a taxi then you can buy a limo if you want and really think people will book you. All the costs I mentioned above will be less except the vehicle which will be a little more as it must be “luxury” the most basic being Statesman or Fairlane that can be on the road for 6 years. With Charter buses which do not have a licence you can only accept bookings that are not immediate and must be quoted price. A “bus” has at least 10 passenger seats and the vehicles can be kept for longer. So a relatively small barrier to entry but can only take advanced bookings and must be a quoted price. No numerical restriction on both limousines or charter buses.

A taxi only takes around $40 per hour now. Average might be around $3000 to $4000 per week. A week is 156 hours. Yes the car can’t be on the road all the time but it certainly can’t earn what you are talking about. Your suggested profits are way in excess of what you call monopoly profits. Earnings from a taxi for the owner might be the lease of the licence plus maybe $200 per cab on a weekly basis for a large base so around $35000 pa.

“He should be clearing 100k after tax”

Even if I owned my taxi outright and drove 60 hours a week at the busiest times and had another good driver I could not get that now before tax. The only 2 costs that could reduce would be amount paid to taxi company if that is not compulsory, I think the price would come down and the licence all the other costs would remain the same or go up as a proportion as a result of less efficiency. Increasing the allowable age of a vehicle would bring the cost down but probably only slightly.

Dot one thing you must realise is that not every fare is profitable and the number of customers is limited. An non-licenced taxi market is likely to go the way of NZ. Considering wages in NZ are cheaper and the fares are about the same price to dearer they are likely to go up not down. http://www.taxiautofare.com/nz/taxi-fare-card/Auckland-Green-Cabs-fare The only advantage that system has for the customer is less waiting time at peak hours which is only possibly 10 hours per week averaged out. I am talking about Brisbane here and Melbourne is different with lower fares much lower than you can get in NZ. NZ has a 15% GST so that can account for a little of the cost but not all. http://www.taxi.vic.gov.au/passengers/taxi-passengers/taxi-fares#metropolitan

I do actually think that fares in QLD are too high $2.14 per km for South East QLD.

The real question is how to remove some of the licence price and put it in the hands of the driver. So long as you accept it is a public service with obligations to serve all customers to a reasonable standard some price will need to remain so that for example there can be wheel chair taxis. I know you may may not believe in Public Transport with service obligations but that is how it is.

With Melbourne I do not know the details but some of there costs are lower but not low enough to offset the very low fare rate. As a driver there it would be extremely hard to make a dollar. I have also heard that violence is more of a problem there but don’t know if this is true or not.

I can’t give any projections because with a reduced fare it is impossible to know how many extra customers might come but halving the fare means the vehicle can only earn about 34c per km this is non stop and not counting fixed costs. So 2.14 per km divided by 2 gives us 1.07 less GST 97c plus flagfall which we will guess to be 10% of the fare so back up to $1.07. Vehicle will be hired about 50% of the time so around half the time vacant. So this gives us 54c per km. Fuel plus running could be around 20c per km (not including any costs other than fuel and maintenance of vehicle). This leaves us with 34c per km. The fastest you can normally drive is about 40km per hour so based on that $13.60 per hour. This number assumes very little waiting time and the cab is basically flat out.

Calculating it another way I came up with the final figure of around $19 per hour flat out. This was using my personal approximate km rate and halving it. It does vary though by about 10% on any given week and is better when busy.

kelly liddle, yes there are many different licensing issues that are broken in this country. For example, in Singapore it took my step mother 1 hour to set up a fully licensed bar. 3 forms and a trip to the police station for a stamp. The actual license cost her barely anything.

Then again in Singapore you have to buy the right to own a car! (apparently the 2011 cost was around $50,000 singapore dollars – note no car included – that just allows you to buy a car). Its one way to reduce road congestions anyway

There seems to be some confusion about what a Taxi is. People talk about booking a taxi well you can book a limousine and you can buy a licence for $75 000. The difference is they can’t wait on a rank and must quote a price that is all.

Surely even charging $75,000 for the right to run a limousine is exhorbitant! Why isn’t it much closer to the actual cost of regulation?

Surely even charging $75,000 for the right to run a limousine is exhorbitant! Why isn’t it much closer to the actual cost of regulation?

Governments want to make a dollar and Fels suggestion is for them just to change the method a little about how to make a dollar.

Chris I agree why don’t they sell limo licences for $20 000. Revenue I am guessing. If the price was this low it would make it easier to compete with taxis which is a good thing. The only thing a taxi licence is guaranteeing in my opinion is to pick up hails and booked vehicles can be subject to full competition.

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